While everyone is applauding that the House Republicans have surrendered and signed on to the 2-month extension of the 2011 payroll tax cut, I think that the payroll tax cut itself is a bad idea which threatens the future of Social Security.
Social Security is supposed to be self-funding through a payroll tax on employers and employees. The retirement of large numbers of baby boomers will require either an increase in payroll taxes or a reduction in benefits if the program is to remain fiscally sound into the future. There is no justification at all for reducing payroll taxes in 2011 or 2012, other than the short-term political benefit of a pre-election tax cut.
Any reduction in payroll tax collections would aggravate the fiscal crisis facing Social Security, which has always been regarded as an off-budget program, separated fiscally from the other operations of the U.S. government. By creating the political fig leaf of offsetting the loss of payroll taxes collected with increased fees for Fannie Mae and Freddie Mac loan guarantees, Congress is now treating Social Security as just another government program which can be tinkered with for political gain.
What justification is there now for excluding Social Security from the federal government’s annual budget which, in case you hadn’t noticed, is running deficits in excess of a trillion dollars every year?
The future of Social Security was already a matter of concern because of the increasing number of retirees and reduced payroll tax collections due to the recession. The decision of Congress to treat Social Security as a political cookie jar should increase our concern for that program’s future.
Many Republicans have taken a pledge never to increase taxes. Having been burned once over this short-term extension of the payroll tax cut, how likely are they, or any other members of Congress who want to be re-elected, to allow the tax cut to expire in 2012 or 2013? It’s the “temporary” Bush tax cuts all over again!
President Clinton demonstrated that with modestly higher, not lower, taxes we can live within our means and actually balance the federal government’s budget. But the Bush tax cuts, two foreign wars, and an unfunded Medicare prescription drug plan are now generating trillion dollar annual deficits out into the future as far as the eye can see. And now we’ve entangled Social Security into the mix.